The purpose of this paper is to explore various options of currency regimes that could be adopted in the short and medium term in order to consolidate economic stabilization and recovery in Zimbabwe. An analysis of the data suggests that at the core of the economic crisis was the Government's inability to borrow from domestic and international debt markets leading to excessive money printing to finance the budget deficit. This led to hyperinflation, worsening social conditions, Negative GDP growth, and worsening balance of payments position.
The paper's review of international experiences of economic crises highlights a number of conditions crucial for a successful currency reform. These conditions are: monetary policy reform, fiscal reforms, central bank reforms, socio-economic convergence, establishment of social safety nets, financial sector reforms, re-engagement with development partners, structural reforms, and strong leadership and political commitment. The paper also places emphasis on timing and sequencing of reform actions.
The paper proposes that the optimal choice of a particular currency regime being based on a framework that takes into account the following: (a) the advantages and disadvantages of a particular regime, (b) the need for correct timing and sequencing of policy tools and reform actions, (c) the prior capacity conditions in the country, and (d) the political commitment to undertake the necessary reforms. It is imperative to note that these reforms are no quick fixes for designing economic stabilization and recovery programs needed in Zimbabwe. The Zimbabwean authorities and stakeholders need to fulfill the aforesaid preconditions for successful currency reform, before collectively selecting from among the various options.